Chart Of The Day: US-China Trade Deficit Hits Record

The US Census Bureau reported that in October, the total deficit with China hit a record $29.5 billion. What did America need to export so much that it is willing to impair its GDP (net imports are a GDP drain) and boost the GDP of China? "Primarily computers and toys, games, and sporting goods." In other words, gizmos and iPhones. And no, China did not buy US bonds - recall that China has boycotted US Treasurys for precisely one year - so the age old equality that we export China worthless paper in exchange for just as worthless gizmos, yet somehow everyone benefits, is no longer valid. What the US does, however, export to China, is inflation, courtesy of the USDCNY peg, and is the reason why the PBOC is still terrified, and certainly will be after Bernanke announces QE4EVA (RIP QEternity) tomorrow, to ease more as the last thing it can afford is to create its own inflation in addition to importing America's.

This is good for those bullish on USD_denominated assets. A bigger deficit means that China has more 'money' to lend back to the USA or to buy USD assets. IF the trade deficit is gorwing, then 'money supply' is growing - and asset prices get pushed up. If they're not buying T-notes, China is buying other USD_denom assets.

China has the Antidote to the $USD hegemony, they simply confiscate all $$ at the border and exchange them for own currency to domestic exporters, than take those dollars and 're-issue' them abroad, genius!

Instead of letting the USA have the upside of the world reserve currency they are turning the game around the profiting from it them selves! And the USA gets stuck with the bill, genius again!

Nature abhores an imbalance, it will always find an 'opportunist' to take advantage of it.

Well, not entirely true. There are USD accounts here, ditto with Euro, HKD, Aussie, etc. But buying up the USD when it's converted means more RMB in the system and that means inflation. The only real way to prevent it is to encourage overseas spending of funds which are not converted, and making outward conversion easier. While at the same time, discouraging consumer spending on USD junk, while instead focusing on real assets.

Real assets being:

Companies/IP

Real estate

Resources

This is already going on, and it's by far the best card to be played. Sending off rich Chinese to snap up properties and land abroad doesn't hurt China in the least bit. It sucks RMB out of the system, while at the same time sends the rent-seekers elsewhere. China doesn't get much revenue from income tax anyways. If businesses are going to be opened, they will typically be opened in China, and there are even incentives for overseas Chinese to do just that, especially if they bring foreign IP into the deal.

This is where fed policy is retarded and they will not figure it out till it's a run-away chain reaction. A "weak dollar" policy won't boost domestic jobs or manufacturing. It's still cheaper overseas. China's more or less ensuring that. African development, development in SEA, is multi-purpose. Firstly, it boosts relations to China in a big way. Second, it opens up new markets to China. Third, it increases local wages to detract them them being viable options to China while at the same time giving an increased ability to buy Chinese goods. Fourth, the improved infrastructure puts into a place the capability for eventual shifting of manufacturing to those countries, however when it does happen, China still dominates the logistics chain. The main problem with the "weak dollar" policy, is that the real impact will be a deep dive in living standards. Weakening and inflation outpaces salary growth, but to fall to a point where it makes no sense to outsource anymore, it's a complete collapse. By sending those dollars back home, this weakens the dollar at the same time as it boosts US inflation to a degree that demands increased wages. Thus staving off the idea of onshoring further. The only counter to that move is to ensure that the dollars never hit the real economy and remain locked up tight

The strong manufacturing and high pay of the 40s, 50s and 60s were the imbalance that is being corrected. You can't have both at the same time in a global economy without slavery. Pushing for infrastructure during the depression as a make-work program and failing to be smashed to pieces during WW2 is what allowed for it to happen. The increase in wages hit a wall in the 70s and has been diving ever-since as the rest of the world recovered. And the greatest punchline to the joke is that everyone has brand new infrastructure while the stuff in the US is falling apart to a point of requiring massive investment to even make manufacturing feasible again. The regulations and red tape pretty much prevent it as well. The costs are damning to a point where it's just not gonna happen.

The fed is playing it all backwards, but it won't figure it out till it's too late.

You know those funny little cocktail umbrrellas are made in China.....I have always wondered what goes thru the ladies minds when they are painting them by hand.....they must think what a country the USA is to buy these stupid little cocktail umbrellas...

Spengler has always kind of annoyed me. I think that this article finally told me why...

I won't dispute the decline of the US, but those who think that Asia is anything but paper just doesn't understand the PHYSICAL realities. Asia doesn't have the physical resources that TODAY'S economic world relies on. Only through massive trade do they manage to be able to scrape together the flows to purchase raw materials. Up until now this has been working. BUT... it is MY contention that it's been working because of US policies that have promoted it this way.

I stressed "TODAY" because tomorrow WON'T be what today is... Tomorrow will be about physical resources, less emphasis on techno stuff (iCrap).

The market for continued growth for Asia is where? Asia built-up based on the loose credit policies of the US and Europe. With these markets in decline I see no gap-fillers, let alone growth markets.

The US has managed to somewhat endure the massive job losses from industries that are less fundamental to the future. What happens with Asia when they start facing massive job losses due to their markets bases continued credit contraction?

None of what I say here should be interpreted as a slam against the people of Asia. It has to do with the Grand Chessboard, geostrategic resources. Because I believe that contraction is the continuing trend I see a ramping up of protectionist policies. IF this path becomes increasingly trodden what countries are the "best looking horses in the glue factory?" Those countries that have a decent mix of physical resources will always be in the better position: Russia, Canada and the US are tops here; China is marginal, the problem is that I suspect that they have way over-shot their carrying capacity.

Chinese economy will grow because of increased purchasing power. In my view, this is where "real" growth comes from. Savings, and increased purchasing power. When purchasing power increases, so does value of savings, thus enhancement of investments. China is a centrally planned economy, but they seem to understand how the basics of capitalism works. Well at least some parts of it. You increase supply by production, means more stuff to buy with money, means better purchasing power parity at home, but let's look internationally.. Chinese are now marketing their currency for internetional use. This why Japan grew so fast similarly. Japan boomed on savings, and production, and their purchasing power increased. China, or Asia I don't believe need the US as much as you think. US was just a useful idiot to work their way up on the ladder. Haha, no pun intended. Of course you can blame the Federal Reserve. As a Austrian subscriber you know I had to throw that in there. You can blame the politicians too don't forget. China should know how capitalism works, or know the fundamentals of it, because they have the freest economy in the world setting in Hong Kong which has it's own currency traded internationally as well.

"General Electric CEO and chairman of President Obama’s jobs council Jeffrey Immelt told Charlie Rose that China’s state run communism works pretty well. I guess he would think so, seeing that GE has been expanding in China."

The Chinese will soon be able to make harse demands from Obama and the rest of Washington, if they haven't already.

Like they would crater the US economy if their demands are not met. China will soon surpass the US. Taking the technologies and industries they can create a lot of pain for the US when it refuses to abide to their demands.

China knows the way to defeat the US is economically, not militarily.

Just a bit more time. Many of the Chinese economist attended the top US universities and know the way the Federal Reserve operates (through joint discussions when China was evolving). It also has hacked into systems and knows the conversations between economist within the treasury and Federal Reserve.

Well Yogi, I read on the intewebs that that "pipeline" from Canada, that Mittens was gonna "push through" has alot of China interest, and MAYBE, since they have financial interests in the wells that feed it, they called PrezO, and that fell through. Could this be an example? Can't always believe what you read on the net, but "meh".

Buying up companies, real estate, resources, developing Africa and other countries, being a good-faith trading partner to countries where they never had that experience prior, etc. As the economy in China rises, certain sectors no longer make sense to have. The key is to be able to hand them off to trading partners and grab the credit for it rather than allowing the west to do it first.